Debt Condonation bill condemns farmers to poverty
The Senate and Congress, and by extension, the administration of President Bongbong Marcos, Jr., which had certified the bill as urgent, is foregoing an opportunity to solve the single-biggest problem in agriculture and to modernize it.
I’m referring to the Debt Condonation bill (House Bill 6636), which congressmen have passed on third reading and is now being heard by the Senate committee on agriculture. The bill calls for the condonation of all debts of agrarian reform beneficiaries to the government. These debts stem from the compulsory acquisition of private lands for the Comprehensive Agrarian Reform Program (CARP). Under CARP, the government acquired private lands and transferred these to farmer beneficiaries who had 30 years to pay the debt.
Under CARP, farmer-beneficiaries weren’t allowed to sell or lease them for 10 years from the date of award and until such time their amortizations were fully paid.
Most, however, haven’t been able to pay these amortizations. Almost 80% of the beneficiaries are unable to pay their debts that totaled P52 billion. It’s not surprising why. According to a study by Cristina David in 2003, the restrictions imposed by CARP eroded the collateral value of the land and limited access to credit; constrained the transfer of land from less productive to more productive uses; limited the choice of more efficient contractual arrangements; and lowered the value of the awarded land. In other words, the government is to blame for the farmer beneficiaries’ failure to pay their debt.
A number of economists including national scientist Raul Fabella and I had been arguing way before and during the pandemic for a debt condonation program for agrarian reform beneficiaries. We saw debt condonation as a way to free the rural land market because if the debts are condoned, agrarian reform beneficiaries would now be able to sell or lease their lands. The rural land leasing market would at least expand and farmland consolidation by leasing would happen. At the same time, if it was possible to do so, the state should raise the land retention limits under the debt condonation program from the present five hectares to at least a more viable 25 hectares.
Unfortunately, the Debt Condonation bill makes the situation even worse. The bill specifically prohibits condoned farmers from selling or leasing their land for 10 years, except through hereditary succession. This means that these farms will be frozen out of the rural land market for 10 years and prevent any form of farmland consolidation through leasing. More efficient farmers cannot expand through leasing.
These lands are some of the country’s most productive lands since they were the subject of compulsory land transfer, unlike the less productive state-owned lands that were distributed under CARP. Those state lands, mostly nonirrigated, have a different problem — only collective certificates of land ownership award were given, not individual titles, but that’s a different story.
If passed into law, this Debt Condonation bill effectively chains the farmer-beneficiaries to the land and condemns them into poverty. The average farm size is one hectare or less and therefore just too small to be modernized through the application of capital, management and scientific know-how to increase yield and productivity.
The bill robs the farmer of his freedom to do with the land as he sees fit. If he wants to lease the land to a more productive farmer because he’s getting old — the average age of farmers is about 55 — or because he doesn’t earn enough from farming (most farmers are now part-time farmers because the income from farming isn’t enough), the government won’t allow him to do so under the bill.
The single-biggest problem in Philippine agriculture is land fragmentation. It’s not the lack of budget or smuggling or agricultural imports. It’s that our farms are just too small. No amount of increased government budget will fix this structural problem.
The only way to fix this is to remove some of the restrictions imposed on rural land under the CARP. We were hoping that the Debt Condonation bill would have been an opportunity to remove these restrictions and free the rural land market with provisions such as converting the certificates of land ownership award into fee simple titles; removing Department of Agrarian Reform clearances on transfers of ownership of land; doing away with the landholding ceiling and allowing leasing on awarded lands; and limiting the existing notice of coverage to one year.
Alas, this bill, if passed into law, would make the situation even worse since even paid amortizations, by way of condonation, will not free the farmer from selling or leasing his land. Instead of this administration beginning to address the single-biggest problem in agriculture, it would be taking a step backward because no amount of increased budget or agricultural protection will fix this problem. The only way to fix this problem is by freeing the rural land market.
The internationally renowned Japanese agricultural economist Keijiro Otsuka, the former chairman of the Board of Trustees of the International Rice Research Institute in Los Baños, Laguna, warned: “The decrease in farm size is particularly pronounced in the Philippines partly because of rapid population growth and partly because of the failure of growth of nonfarm sectors, which can absorb rural labor. If this trend in farm size reduction continues and the economy sustains a fairly high growth rate, the agricultural sector’s inefficiency can be a major constraint to further economic growth.”
We are already seeing how the problem of low agricultural productivity is weighing down the entire Philippine economy. Because of food shortages caused by low domestic agricultural output and restricted agricultural imports, inflation had been riding high on the back of high food inflation. In January, inflation breached the Bangko Sentral ng Pilipinas’ (BSP) forecast at 8.7%, mostly due to food inflation.
As a result, the BSP had to increase interest rates again by another 50 basis points to 6%. The higher interest rates will weigh down on the growth of the economy, particularly on interest rate-sensitive sectors like real estate, appliances and automobiles as the cost of borrowing rises. Labor will seek higher wages due to the rise in food costs, which further drive away labor-intensive industries. Analysts expect GDP growth to slow to 5.5% this year, way below the government’s target of 6.5%.
Higher food prices will have a bigger and longer toll on the economy arising from more people experiencing hunger and more children becoming malnourished and unable to learn.
The Marcos administration’s agriculture program will end up in total failure unless and until land fragmentation is tackled. By allowing Congress to pass the Debt Condonation bill as is, without removing the restrictions on the rural land market, the government will just be doing cosmetic surgery on the problem of low agricultural productivity and in the process, forego a historic opportunity to transform and modernize agriculture.
Calixto V. Chikiamco is a member of the board of IDEA (Institute for Development and Econometric Analysis).